Economic recovery 'may be stalled'

SPIRALLING oil prices pose a serious threat to London's economic recovery, a think-tank has warned. Experian Business Strategies said the capital's rebound could grind to a halt if sky-high oil prices spark a sharp increase in interest rates.

Research director Dr Neil Blake said: 'There has been increasing focus on the international uncertainty of late, with exchange rates fluctuating wildly, the price of oil soaring and financial markets failing to hold their rally.

'If fears of leakage from oil prices into higher inflation and interest rates are realised, the recovery could even go into reverse. The negative impact on London's nascent revival would be severe given its close links to the global economy.'

Experian's warning on oil prices came as crude weakened on the back of a promise from US ally Saudi Arabia that it would supply up to 2m barrels a day in additional crude oil if the market demands it, regardless of the position of its fellow Opec members. US crude for July delivery fell 27 cents to $39.66 a barrel before skidding to a daily low of $39.55.

The Saudis will pump an extra 600,000 barrels a day from next month, lifting its total daily output to 9.1m barrels, US Energy Secretary Spencer Abraham said after a private meeting in Amsterdam with Saudi Oil Minister Ali Naimi. A three-day Opec forum closes there today.

Abraham added: 'He also stated that going forward they will meet all requests up to their full capacity of 10.5m barrels a day. I think this was a very important comment on his part.'

He said he expected the new Saudi commitment would help reassure oil markets where oil prices have soared above $40 a barrel on fears of instability in Iraq, low Opec output and high demand. But any increased Saudi supply would still take weeks to flow through to cheaper petrol prices.

Meanwhile, Experian published its latest forecasts for London's economy. These show the capital expanding by 3.2% this year compared with a feeble 0.5% in 2003. Next year, growth is expected to pick up further to 3.7% and 3.9% in 2006. London's growth is seen outstripping the national average of 3% this year and putting it near the top of the growth league table, trailing only the South-East, South-West and Northern Ireland.

Blake said: 'With its heavy reliance on internationally exposed services such as finance and tourism, the capital has brushed with recession in the past two years. But the latest evidence shows sentiment improving more rapidly than elsewhere and job levels rising sharply.'

Today, Brent crude dipped two cents to $36.49 a barrel.